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06 Feb 2020
New York, February 06, 2020 -- Moody's Investors Service has assigned a Aa1 rating to the Woods Hole, Martha's Vineyard and Nantucket Steamship Authority MA's $24.9 million Steamship Bonds, 2020 Series A. The outlook is stable.
The Aa1 rating reflects the full faith and credit pledge of the Commonwealth of Massachusetts. Should the authority have insufficient funds on hand to pay debt service, it is statutorily required to certify to the state treasurer the amount required to pay principal and interest due and the commonwealth is required to pay that amount. Absent this need, debt service is expected to be paid with revenues generated by the authority.
The commonwealth's Aa1 rating reflects its robust economic base, driven by social factors such as a highly educated workforce and high income levels, that support an elevated long-term liability burden. The commonwealth's reliance on economically sensitive revenues is balanced by its diverse economic base. Strong governance practices are reflected in continued stable financial performance.
The stable outlook reflects the commonwealth's current outlook, which reflects our expectation that the commonwealth will continue its trend of strong financial management, taking proactive measures to navigate credit challenges that could emerge if the economy faulters over the near term.
FACTORS THAT COULD LEAD TO AN UPGRADE
- Continued growth of reserves and establishment of stronger constraints on their use
- Established trend of structural budget balance
- Moderated debt and pension burdens, especially relative to peers
FACTORS THAT COULD LEAD TO A DOWNGRADE
- Protracted structural budget imbalance
- Reserves or liquidity that falls below adequate levels
- Growth in leverage relative to state GDP or rising fixed costs relative to state revenue
The bonds are general obligations of the Commonwealth of Massachusetts. In practice, the steamship authority expects to repay the bonds with revenues derived from operation of the steamship facilities, including passenger and vehicle ferry service from Cape Cod to Nantucket and Martha's Vineyard islands. If authority revenues are insufficient to pay debt service or fully fund required reserves, the authority is statutorily required to certify to the state treasurer the amount required to pay principal and interest due, and the commonwealth is required to pay that amount.
The authority's operations have been self-supporting since 1962, and since then the commonwealth has not been called on to provide for deficiencies, as authority reserves covered small operating deficits when they occurred in 1967, 1973, 1982, 1996 and 2018. The authority's operations generated net operating income (excluding depreciation) of $11.7 million in fiscal year 2018, providing a very narrow 1.02 times maximum annual debt service (MADS) coverage post-sale. MADS coverage includes debt service on the current issuance and the six additional issuances outstanding. Post-sale debt outstanding will total $93.5 million.
Financial operations can be affected by the impact of overall economy and weather on travel statistics and by fuel costs. The authority experienced significant disruptions in 2018 due to mechanical issues with two vessels and it resulted in a flat ridership trends, but total revenues increased by 1.5%. Ridership was down -1.3% in fiscal 2019 due to large storms that decreased service during peak weekends. For the first month of 2020 the authority reports an increase in early reservations to Martha's Vineyard and stable reservations for Nantucket. To counterbalance the general operational uncertainties, the authority is required to maintain a reserve fund equal to the greater of 5% of principal outstanding or $600,000. The balance was $3.6 million as of December 31, 2018, the end of the authority's fiscal year 2018.
If the commonwealth is called on to make a debt service payment, the statute requires the amount of it to be assessed on the towns of Barnstable, Falmouth and Nantucket (Aaa stable) and the city of New Bedford (A1 stable) and the county of Dukes in order to recover its costs. However, the commonwealth's obligation to make payment for debt service is not contingent on the successful levy or collection of assessments. No such assessments have been required nor has the commonwealth been called upon to make payments since 1962.
USE OF PROCEEDS
Proceeds of the current sale will be used to reconstruct the waterside facilities at the Woods Hole Ferry Terminal and to refund prior issued bonds for expected net present value savings. This project is part of a larger plan to rehabilitate the existing terminal facilities.
The Commonwealth of Massachusetts is the 15th largest state by population, boasting nearly 6.9 million residents in 2018. Its gross domestic product, reaching $569.5 billion, ranks 10th among the states. Per capita income was 131.7% of the national average in 2018, the 2nd highest.
The steamship authority was created in 1960 and provides access to the islands offshore from Cape Cod. The authority's area of operations is defined by tourism, and the bulk of its revenues are earned during the summer months. The authority's enabling legislation permits the authority to have up to $100 million of bonds outstanding at any time, increased from $75 million in 2014. Following the current issue the authority will have approximately $93.5 million outstanding.
The principal methodology used in this rating was US States and Territories published in April 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
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